Stisser v. SP Bancorp, Inc.

• Decision Date: 29 November 2017
• Docket Number: No. 1790, Sept. Term, 2015,1790, Sept. Term, 2015
• Citation: 174 A.3d 405,234 Md.App. 593
• Parties: Gary W. STISSER, et al. v. SP BANCORP, INC., et al.
• Court: Court of Special Appeals of Maryland

234 Md.App. 593

174 A.3d 405

Gary W. STISSER, et al.

v.SP BANCORP, INC., et al.

No. 1790, Sept. Term, 2015

Court of Special Appeals of Maryland.

November 29, 2017

Argued by John F. Keating, Jr. (Richard B. Brualdi, The Brualdi Law Firm, PC, New York, NY, Marshall N. Perkins, Law Offices of Michael S. Greene PA, Owings Mills, Donald J. Enright, Elizabeth K. Tripodi, Levi & Korsinsky, LLP, Washington, D.C., Vincent S. Wong, New York, NY), all on the brief, for Appellant.

Argued by Jerrold A. Thrope (Gordon, Feinblatt, LLC, Baltimore, MD.) Christopher Malloy (Robert Dunn, Skadden, Arps, Slate, New York, NY), all on the brief, for Appellee.

Panel: Woodward, C.J., Leahy, Reed, JJ.

Leahy, J.

This appeal concerns Maryland's power to exercise personal jurisdiction over a company headquartered in Texas, as well as the out-of-state directors of another company that was incorporated in Maryland and headquartered in Texas. All relevant activity leading to the merger of companies challenged in the underlying shareholder action occurred outside Maryland except one: the incorporation of a transitory merger subsidiary.

Gary W. Stisser and Fundamental Partners ("Appellants") are not residents of Maryland, but they owned shares of common stock in SP Bancorp, Inc. ("SP"), which was a company headquartered in Texas and incorporated in Maryland. They filed a shareholder class action in the Circuit Court for Baltimore City following the merger of SP into a newly formed subsidiary of Green Bancorp, Inc. ("Green")—a bank holding company incorporated under Texas law with its principal place of business in Texas.

Appellants filed the lawsuit against SP and the individual members of SP's Board of Directors ("SP Directors") (collectively, the "SP Defendants"), and against Green and Green's newly-formed Maryland subsidiary, Searchlight Merger Sub, Inc. ("Searchlight") (collectively, the "Green Defendants").¹ Appellants' primary contention was that the SP Directors breached their fiduciary duty, aided and abetted by Green, in contriving the merger to advance their interests at the shareholders' expense. The circuit court granted motions to dismiss filed by the SP Defendants and the Green Defendants (together as "Appellees"), finding that the court lacked personal jurisdiction over the SP Directors and Green, and that, although the court had jurisdiction over SP and Searchlight, Appellants failed to state a claim against them.

Appellants noted an appeal to this Court presenting four questions, which we have rephrased as follows:²

1. By forming Searchlight in Maryland for the purpose of consummating a merger, did Green subject itself to personal jurisdiction in Maryland?

2. Are the SP Directors subject to personal jurisdiction in Maryland because the Articles of Merger were filed in Maryland?

3. Were SP and Searchlight necessary parties under Maryland Rule 2–211(a) ?

4. Does the Complaint state a claim for relief against each of the Appellees?

We hold that Green was not subject to specific jurisdiction in Maryland because (1) the quality and quantity of its contacts in Maryland in relation to the merger did not rise to the level of "transacting any business" in Maryland within the meaning of Maryland's long-arm statute; and (2) Maryland's exercise of jurisdiction would not comport with traditional notions of due process under International Shoe Co. v. Washington , 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), given Green's limited and attenuated contacts in Maryland. In accordance with the Supreme Court's recent decisions delimiting the authority of state courts to exercise general jurisdiction over nonresident corporations and corporate directors, we also conclude Green was not "at home" in Maryland for purposes of general personal jurisdiction. Bristol-Myers Squibb Co. v. Superior Ct. of Cal., S.F. Cty. , ––– U.S. ––––, 137 S.Ct. 1773, 198 L.Ed.2d 395 (2017) [hereinafter " Bristol–Myers "]; BNSF Ry. Co. v. Tyrrell , –––U.S. ––––, 137 S.Ct. 1549, 198 L.Ed.2d 36 (2017) ; Daimler AG v. Bauman , –––U.S. ––––, 134 S.Ct. 746, 187 L.Ed.2d 624 (2014) ; Goodyear Dunlop Tires Operations, S.A. v. Brown , 564 U.S. 915, 131 S.Ct. 2846, 180 L.Ed.2d 796 (2011). Consistent with Daimler , we hold that a nonresident parent corporation is not subject to general jurisdiction in Maryland based solely on its incorporation of a subsidiary within Maryland. We also decline to impute SP's contacts to its directors, and hold that the SP Directors—all nonresidents who never entered Maryland in connection with SP business—did not purposefully avail themselves of the privileges and protections of Maryland law.

In light of these holdings, we do not reach Appellants' third and fourth questions.

BACKGROUND

Back in October 2010, SP converted its business structure from a mutually-owned thrift to a stock-based ownership bank holding company. This conversion triggered federal regulations prohibiting the sale of SP for the next three years.³ SP was incorporated in Maryland and served as the holding company and parent of SharePlus Bank, a Texas-chartered state bank. SP's principal place of business was in Texas, and the company did not have any offices or employees in Maryland. Indeed, according to the record on appeal, none of the SP Directors resided or were employed in Maryland.

By mid–2012, the SP Directors began entertaining the idea of a possible merger with Green. On August 2, 2012, Mr. Jeffrey L. Weaver, SP's President, and Mr. Paul M. Zmigrosky, the Chairman of SP's Board of Directors, met in Dallas, Texas with representatives from Green, "during which the representatives of Green initiated a high level discussion of a potential reverse merger with SP Bancorp following expiration of the three year restriction."

A. Preliminary Negotiations

In July of 2013, SP hired Commerce Street Capital ("CSC"), an investment banking firm, to help find potential candidates to merge with SP. The next month, representatives from SP and Green met again in Texas to discuss a potential merger. On September 14, 2013, CSC presented SP with an analysis of a merger of equals, using Green as the basis for a merger partner. At this presentation, CSC advised the SP Directors on different growth strategies, including the purchase of a smaller financial institution, a merger of equals, or acquisition by a larger financial institution. Over the next few months, Mr. Zmigrosky and Mr. Weaver held preliminary discussions with several candidates, including a larger bank that the parties referred to as "Party A."

On January 9, 2014, from its headquarters in Texas, Green submitted a letter of intent to purchase SP for $43 million, representing approximately $25.91 per share. In the letter, Green proposed retention agreements for certain members of SP's senior management and non-compete covenants for the remaining SP Directors. The SP Directors met the next day at their headquarters in Texas to discuss Green's offer as well as the preliminary negotiations with Party A. At the meeting, the SP Directors decided to form a mergers and acquisitions subcommittee ("Committee"), composed of Chairman Zmigrosky and Directors Carl Forsythe, P. Stan Keith, and Jeff Williams. The Committee, in part, served to shield Mr. Weaver from merger negotiations due to the concern that, as President, Mr. Weaver was likely to be offered continued employment post-merger.

Throughout February, the Committee negotiated with and considered offers from Party A and a third entity. The most valuable offer came from Party A for approximately $23.78 per share comprised of cash and Party A stock. After learning of Party A's offer, Green revised its own offer, and increased the original offer price by approximately 21%. Ultimately, the Committee determined that Green's second offer was the best option, and on February 27, 2014, the Committee recommended that the full board of SP Directors accept Green's offer. In response, the SP Directors instructed the Committee to terminate negotiations with Party A and execute Green's non-binding letter of intent.

B. SP and Green Negotiate the Merger

Green and SP, through outside counsel, continued negotiations and conducted due diligence in Texas and in New York over the course of the next month. Then, on March 28, 2014, Mr. Weaver met with representatives from Green in Dallas to discuss the possibility of his post-merger employment with Green. Three days later, CSC disclosed to SP that it owned a 3% share in Green. The Committee met with its legal counsel to discuss CSC's potential conflict of interest and determined that CSC had no existing commercial relationship with Green but, to avoid any potential impropriety, the Committee decided to engage Mercer Capital Management, Inc. as an independent advisor to render a fairness opinion on the merger.

On April 24, 2014, the SP Directors met with counsel, CSC, and Mercer to discuss Green's proposal. At this meeting, Mercer offered its preliminary conclusions from its fairness inquiry, indicating a "strong comfort level" that the merger met or exceeded SP's fair market value. Then, on May 1 and 5, 2014, the SP Directors met in Texas with legal counsel and the two financial advising firms to consider the merger. On May 1, the Committee provided the SP Directors with their recommendation to approve the merger. On May 5, Mercer issued its opinion that the merger was fair. Using multiple measures, Mercer valued SP in a range between $16.20 and $32.05 per share. Green's final proposed offer would pay $29.55 per share, which put the purchase price in the 96th percentile of Mercer's valuation—a 24.26% increase from Green's initial offer and approximately 40% over the price at which SP's shares closed the day prior. This 40% difference between purchase price and market price of the shares represented the approximate cash payout for shareholders.⁴ Mercer concluded that the merger with Green was "fair, from a financial point of view, to [SP's] shareholders." At the meeting's conclusion,...